DIRTT Environmental Solutions Ltd

TSX:DRT

Earnings Call Transcript

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the DIRTT Environmental Solutions 2020 Second Quarter Financial Results Conference Call. [Operator Instructions]I would now like to hand the conference over to your speaker today, Kim MacEachern, Director of Investor Relations for DIRTT. Please go ahead, ma'am.

[Kim MacEachern, Director of Investor Relations]

Thank you. Good morning, everyone, and welcome to today's call to discuss DIRTT's second quarter 2020 results. Joining me on the call are DIRTT's Chief Executive Officer Kevin O'Meara and Chief Financial Officer Geoff Krause.Management's prepared remarks today are accompanied by presentation slides. To access the slides, please use them from the web page of this webcast or go to the Investors section of DIRTT's website. The earnings press release that was issued yesterday afternoon can also be found on our website.Today's call will include forward-looking statements within the meaning of applicable Canadian and United States Securities Laws. These statements are based on the company's current intent, expectations and projections. They are not guarantees of future performance. In addition, this call will include references to non-GAAP results, excluding special items. Please reference our Form 10-Q as filed on July 29, 2020, with the Securities and Exchange Commission, or SEC, and other reports and filings with the SEC for information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results.I will also remind you that this webcast is being recorded and a replay will be available today at approximately 1 p.m. Eastern Time.I will now turn the call over to Kevin.

[Kevin P. O'Meara, President, CEO & Director]

Thank you, Kim, and thank you to everyone joining us today. Starting on Slide 4, obviously it's been a challenging time in the construction industry as all of us worked to deal with the impact of the COVID-19 pandemic on our business and the many ongoing uncertainties it has created.Similar to the first quarter, DIRTT saw the deferral of some projects due to either full job site shutdowns or slowdowns. Nonetheless, at $42.2 million, our second quarter revenue slightly exceeded our first quarter revenue. We delivered modestly positive adjusted EBITDA and we maintained our strong balance sheet, ending the quarter with just under $45 million of cash.Although to-date, commercial and healthcare organizations appear to be taking a measured approach to modifying spaces in reaction to COVID-19, we continue to believe the long-term impacts of the pandemic on our business have the potential to be positive, accelerating the shift to prefabricated off-site construction and to DIRTT's modular product suite. Post-reductions in on-site labor due to physical distancing can adversely impact construction schedules and costs, both of which are hurdles that DIRTT can help overcome. Increased focus on infection control and risk mitigation office environment may call for reduced density, increased use of private offices and other separation strategies, all of which could increase the per square foot content of DIRTT Solutions.Perhaps most importantly, spaces will need to evolve with changing circumstances. In recent months, the nature of the conversation with our clients has begun migrating from historical focus on budget and schedule overruns to a fear of spending millions of dollars building a space only to find it is not appropriate for the organization given current circumstances.We are hopeful these concerns provide a catalyst that accelerates the trend to off-site construction. To take full advantage of these opportunities and drive our market penetration, we've been continuing to implement, albeit in a cost-conscious manner, the strategic plan we announced last November, which focuses on commercial execution, manufacturing excellence and innovation.Turning to Slide 5 and 6, the most visible example of our progress was the launch of DIRTT's first ever comprehensive strategic marketing campaign in early July. The campaign is called Make space for possibilities and runs until the end of 2020. It positions DIRTT solutions to meet the evolving needs of individuals, teams and organizations seeking greater adaptability within their workplaces and real estate portfolios as they continue to navigate change. This advocacy campaign unifies our sales, marketing and product innovation efforts.We also work closely with our distribution partners to develop a targeted account advertising strategy to support their sales efforts within key verticals and with specific end users. It is designed to bolster DIRTT's mind and market share and strengthen both existing market opportunities and target new ones. It is fully supportive with the suite of sales tools for both our partners and our reps, and includes a robust evaluation platform to measure reach, engagement and conversion to ensure campaign optimization.Most importantly, it is a fully integrated strategy that coincides with the rollout of Phase 1 of our CRM system and includes multi-layered lead capture built in through the visitor journey. It's a sophisticated deployment of the DIRTT brand, drawing from the deep expertise recently added to our commercial team. A program of this magnitude simply would not have been possible 18 months ago and I think would be the envy of much larger and more established companies.In addition to the Make space campaign and turning to Slide 7, we continue to make progress with every aspect of our strategic plan. We completed the hiring of our sales leadership team with the direct reports to our Chief Commercial Officer and Vice President of Sales now fully onboard. This included welcoming Mark Kinsler as Director of Strategic Accounts and Enterprise Sales. Mark's extensive industry experience includes 5 years as President of Trendway, a Commercial Furniture and Interior Solutions manufacturer, and 25 years in senior sales positions with Herman Miller, most recently as Senior Vice President of Sales. I am confident Mark will be a key leader for our strategic account and large project strategies, and I look forward to working closely with him.We also hired a fourth regional Sales Director, finalizing the team who'll oversee regional sales going forward, and we welcome the 5 new partners during the quarter, 3 in the Central U.S. and 1 each of the western and southern regions. We are encouraged to see early momentum with our new partners as several who joined us earlier in the year are already booking orders.Within our manufacturing operations, our safety culture is now well ingrained and we continue to achieve recordable incident rates more than 75% below industry standards. Having turned our focus to quality initiatives in the second quarter, all our plants exceeded their goal of reducing external quality issues by 50% relative to 2019. As we now embark on the process of improving the efficiency and cost effectiveness of our operations, we remain on-track to complete our significant step function improvements by the end of this year and migrate towards a continuous improvement mode next year.The building that will house our Carolina plant, located 30 minutes from the Charlotte airport, is complete and we received our first shipment of equipment in July. We remain on schedule for commissioning the plant in the first half of 2021.Turning to Slide 8, as you may recall, in June 2020, we announced our commitment to an ongoing Board renewal process. As part of that process, I am very pleased to announce that Michael Ford and Shauna King will be joining our Board on August 1st. Michael is the Head of Global Real Estate and Security for Microsoft with responsibility for a multi-billion dollar real estate portfolio that includes more than 38 million square feet across 113 countries. As an accomplished professional in one of our target customer segments, namely talent-intensive businesses, he brings valuable perspective on integrating technology into real estate with insight and advancements in virtual reality and artificial intelligence.Shauna was formerly Vice President, Finance and Business Operations for Yale University. And prior to that, held many leadership positions with PepsiCo, including Global Chief Information Officer and Chief Transformation Officer. In addition to her financial expertise and prior experience as a public company Board member, Shauna brings insight and perspective on overseeing major transformational efforts and managing the implementation of technology.Today, we also announced that Christine McGinley is resigning from our Board effective August 31st. Chris has been a Director of DIRTT since 2013 and was instrumental in the Board's efforts in relation to our recent NASDAQ listing and related conversion from IFRS accounting to U.S. GAAP. We thank her for her many years of service.As of August 1st, both Michael and Shauna will join the company's Audit Committee and Shauna will assume the role of Audit Committee Chair.The progress we have made in implementing the strategic plan highlighted by the additions to our management team and launching of our Make space for possibilities campaign helps to drive our confidence in DIRTT's future. Much as we're doing everything possible to properly position DIRTT in the marketplace, the continued economic uncertainty from the global COVID pandemic and its impact on the markets we serve must be acknowledged. The timing for when the results of our efforts will be realized in our financial performance remains uncertain. But our determination to exit this period of uncertainty from a position of strength is undeterred.With that, I will turn the call over to Geoff for a financial review.

[Geoffrey D. Krause, Chief Financial Officer]

Thank you, Kevin. Before turning to the quarterly results, I'd like to recap the steps we've taken from a liquidity standpoint, summarized on Slide 9. As we discussed in our Q1 call, early in 2020, we undertook a fulsome review of our credit facilities.During the second quarter, we completed the definitive documentation on a covenant holiday for our current credit facility. This holiday extends to September 30. At that time, we anticipate that we will either extend that relief or formally convert to an asset-backed line depending on the circumstances. While we currently have $12.8 million available under that facility, it remains undrawn.In the second quarter of 2020, we established Canadian and U.S. dollar lease financing facilities. We drew CAD 3.6 million of the Canadian leasing facility in the second quarter to finance equipment purchased in Canada in 2019. The U.S. leasing facility will be used to fund the equipment purchases for our new Carolina plant. We expect to draw on the facility in the late third and fourth quarter of 2020 as the equipment arrives on site. This includes the financing of $4.7 million of deposits that were paid in 2019, bringing that cash back on to our balance sheet.During the quarter, we also qualified for approximately $4.3 million of Canadian emergency wage subsidies from the Canadian government for the April to June period. Of this amount, $1.6 million was received in June, with the balance expected to be received in the third quarter. The Canadian government recently passed legislation to extend the availability of CEWS through December 19, 2020, introducing a sliding scale to the subsidy relative to the amount of Canadian dollar revenue decline. We will continue to evaluate our eligibility and intend to apply for such subsidies if applicable.Our working capital management focus also continued in the second quarter with no reportable disruptions or delays in accounts receivable collections and a slight improvement in days sales outstanding net of deposits to 29 days. As a result of these activities, we finished the second quarter with cash balances of $44.6 million, a slight increase from the $43.5 million of cash reported at March 31, 2020.Our net working capital as at June 30 was $52.2 million, compared to $51 million at March 31. Our current ratio remains healthy at 2.5x versus 2.4x at March 31 and 2.7x at December 31, 2019.With that background, let's now turn to the second quarter results on Slide 10. Revenue for the second quarter was $42.2 million, a decline of 34% from the comparable period of 2019, but up marginally from the first quarter. As Kevin mentioned, average daily order entry through Q2 was consistent with Q1 and this level has continued into July. However, we are not immune to the effects of COVID and the related restrictions which affected project execution on site.We estimate approximately $3.7 million of projects that we were confident of second quarter delivery at March 15 were deferred to future quarters. In addition, given our short lead times, there were other opportunities that likely would come to fruition absent COVID that were delayed or deferred. The amount of those deferred opportunities, however, is not possible to reliably quantify.While the job site situation remains fluid and regionally dependent, particularly as infection rates surge in certain parts of North America, we expect that to some degree the uncertainty resulting from COVID will continue to impact projects through the remainder of 2020.On Slide 11, adjusted gross profit margin was 38.2% in the second quarter, a decline from 42.1% from the comparable 2019 period and consistent with Q1 of this year. During the quarter, we reduced the warranty provision related to timber, as previously discussed, to $1.3 million from $2.5 million as we identified improved an in-situ solution.Having rightsized our factory labor in Q1 and very early in Q2, this quarter contains no adjustment for costs related to our underutilized capacity within cost of sales. Recall that in the first quarter of 2020, we separately classified $2 million of underutilized capacity and cost of sales and excluded those costs from adjusted gross profit. The decrease from the comparable 2019 period is primarily due to fixed cost leverage on lower revenue and approximately $0.5 million of severance costs in the current quarter.Turning to Slide 12, which details the breakdown of operating expenses, I would like to specifically discuss the sales and marketing expenses, which vary to a greater degree from the comparable 2019 period and from the first quarter of 2020. While variable commission was down on lower revenue numbers relative to last year, we also benefited from cost reductions and deferrals that came as a direct result of travel and other restrictions due to COVID.In particular, I would highlight that travel and entertainment expenses, and marketing and trade shows were down a combined $1.3 million. We are unsure when or if this will return to historical levels. It is reasonable, however, to assume that as economies begin to open up and sales activities return, we would see an increase from current levels. In addition, marketing and specifically trade shows declined as we deferred hosting our annual Connect Trade show in June of this year. Lastly, in the second quarter of 2019, we incurred $1.3 million of consulting costs related to the development of our sales and marketing strategy, which did not recur in 2020.Similarly, G&A benefited from lower travel and entertainment as well as reduced building operating expenses, reflecting the work-from-home status of most of our head office employees. Operation support reflects reduced travel, combined with consulting expenses in 2019 that did not recur.Looking at Slide 13, adjusted EBITDA and adjusted EBITDA margin for the quarter decreased to $0.3 million and 0.6% respectively, compared to $6 million and 9.4% respectively for the second quarter of 2019. This decrease was driven primarily by the $10.9 million decrease in adjusted gross profit and $0.9 million on account of higher legal costs incurred in 2020. These reductions in adjusted EBITDA were partially offset by reduced commissions on lower revenues and decreased spending on travel, meals and entertainment, including trade shows, due to COVID-19 as well as cost reduction initiatives.In 2019, we incurred $1.3 million of consulting costs incurred for our sales and marketing plan, and $0.4 million related to the listing of the company's common shares on NASDAQ in 2019 that did not recur in 2020.I would reiterate that adjusted EBITDA for the quarter reflects a $1.2 million recovery for the timber provision and lower expenses due to COVID-related restrictions. I would also note that we removed $4.3 million benefits of the Canadian Emergency Wage Subsidy from the calculation of adjusted EBITDA.Turning to Slide 14, net income for the second quarter was $0.3 million or nil per share compared to net income of $2.6 million or $0.03 per share for the second quarter of 2019. This was driven largely by the reduction in gross profit, higher stock-based compensation and increased foreign exchange losses, partially offset by $4.3 million of the Canadian Emergency Wage Subsidy, reduced SG&A costs as described previously, and lower income taxes. To be clear, our stock-based compensation in 2Q 2020 was $400,000 versus a recovery of $1.7 million for the same period of 2019 when we use liability accounting due to temporary cash settlement of options that ceased upon our U.S. listing in the fall of 2019.Excluding the cost of equipment and commissioning of the South Carolina plant as described previously and which is largely funded by our new equipment leasing facility, we now expect our ongoing capital expenditures for 2020 to be between $8 million and $10 million, directed mainly towards our DXC refresh in Chicago, and our new DXC in Dallas, commercial systems implementation and software development activities.Let's now touch on our outlook on Slide 15. Given where DIRTT fits in the construction schedule, typically closer to completion, our current deliveries are for projects that were well underway as the COVID-19 pandemic hit North America. While our average daily order entry levels for July have been consistent with the average daily order entry for the first half of this year, the outlook for the remainder of the year continues to be very uncertain due to the effects of COVID.In addition, while we have made substantial improvements within our commercial organization and have undertaken comprehensive brand awareness activities, the timing of the positive outcomes of these efforts remains undeterminable, particularly in light of the COVID environment. We are confident that we will continue to have the balance sheet to support operations going forward, but we remain ready to re-evaluate potential actions should business conditions deteriorate.Operator, we would now like to open the call for questions.

[Operator]

[Operator Instructions] Your first response is from John Wilson (sic) [ Joshua Wilson ] of Raymond James.

[Joshua Kenneth Wilson, Senior Research Associate]

Yes. This is Josh. Could you talk about what the current focal points are in the commercial transformation, now that all of Jennifer's hires are in place and the first phase of the system is in?

[Kevin P. O'Meara, President, CEO & Director]

It's multi-folded. And it really hasn't changed. We still have some positions we need to hire within the sales organization. It's working to get people on-boarded and effective as soon as possible. It's continuing to enhance our sales [ edge ] and sales management. And then on the system side, it's rolling out our total cost of ownership tool, our Phase 2 of our CRM system which we think will be done by the end of the year as well as our enhanced partner portal and helping our partners with their marketing efforts.

[Joshua Kenneth Wilson, Senior Research Associate]

What progress have you made on the national accounts side?

[Kevin P. O'Meara, President, CEO & Director]

We've made good progress. We've got several very interesting conversations that are taking place in a variety of different stages. And so we feel very good about our progress to-date.

[Joshua Kenneth Wilson, Senior Research Associate]

Okay. And then what's sentiment like among your distribution partners? And is there any color there given you that has changed in any way from 3 months ago?

[Kevin P. O'Meara, President, CEO & Director]

It's mixed. The quoting activity in the core business has really not fallen off dramatically. But what everybody is waiting to see is do those turn into orders for 2021. So there is reason to be optimistic because the activity is reasonable, but there is reason to be pessimistic because there is still a little bit of time to go before it turns into orders. So I would say probably cautiously optimistic.

[Operator]

Your next response is from Neil Linsdell of Industrial Alliance Securities.

[Neil Linsdell]

Yes. Actually my first question, you kind of just asked, and it was really -- I'm just wondering if there is any more color you can give on the quoting activity. Obviously, with daily order entry, that's really kind of the last step when you can have a pipeline of 12, 18, 24 months of discussions with clients before you actually get to where you start the lead time on the delivery. So can you give us any extra color on how those discussions are developing and if you're seeing a difference between, say, the health care or the office market or government market?

[Kevin P. O'Meara, President, CEO & Director]

I don't know that I've got great meaningful color to provide. I would say you get flashes of some COVID-specific things that we will quote from time-to-time. The vast majority of more is in the core business, just kind of routine projects where people are either relocating, expanding what they're doing, et cetera, et cetera. A part of the struggle that -- in answering your question is that one of the things we've been working on is very much refining how we manage our pipeline, what level of activity in quoting merits getting placed in the pipeline and so forth. And so we don't have really great comparable data to go back and say, "Okay, a year ago on a comparable basis, our activity was X and now it's to this level." So we're still kind of finding our way as that process matures.

[Neil Linsdell]

Okay. So some of that basically cautiously optimistic, but no specific segment that is really giving you any more confidence that than others?

[Kevin P. O'Meara, President, CEO & Director]

I think that's fair way to think about it.

[Neil Linsdell]

Okay. And I know, I mean, the situation seems to change day-to-day or sometimes out of an hour. But with the COVID impact, is there anything that you're seeing from the conversations that you are having about how customers are thinking? Are they thinking about redoing existing office space more? Are they thinking about new developments and those are -- might be on hold, but now they're thinking about going into them but with a different kind of mindset? Anything like that you're seeing?

[Kevin P. O'Meara, President, CEO & Director]

Yes. And you really need to have a dichotomy. When you have conversations about longer-term projects and how they're thinking about executing those projects going forward, they are much more interested in prefabricated and off-site. And kind of gets you to the prepared remarks where now we're having direct conversations about people being concerned that I just spent millions of dollars and I built the wrong space. And so that's what gives us optimism for the long-term business model and where we'll ultimately head and being able to convert people to our way of building. In the short term, people are still feeling their way. They're still trying to figure out, "Okay, how are my people doing in work-from-home?" And you can see even in the popular press and we're seeing this with our client conversations as well, which is -- at first it was kind of a new found [ couch ], this is great. And now it's starting to wear on people. And they're starting to evaluate we need to do something different. I think we're going to go through waves of that. I think you're going to have waves where people do very quick, inexpensive and not particularly great solutions. And then they're going to say, "Well, I need to figure out how to live with this for a while." And then I think that's where we may come in. In wave 2, we need to put our space together in a way that is more sustainable way to work, but also gives us the flexibility to make changes going forward.

[Neil Linsdell]

Yes. I definitely think that this environment should be favorable for your offering. So maybe just finally, have you seen any kind of interest in more face-to-face meetings or -- I'm wondering when that sales and marketing expense line might start to uptick? Any visibility on that at all?

[Kevin P. O'Meara, President, CEO & Director]

It's hard to say. We're seeing local travel, our people. And it's a market-by-market basis and we're really relying on individual judgment. But it's our people in their local markets, traveling. The thing that you also have to recognize is that there is still a very strict 14-day quarantine period for somebody traveling from the United States into the province of Alberta, where our Calgary operations are based. And so you're not seeing travel, either Canadians coming down to the United States don't get -- they got to get home or vice versa. And so that's a significant portion of expenditure that I don't think you'll see change much until that quarantine restriction is lifted.

[Geoffrey D. Krause, Chief Financial Officer]

And I think to add to that, Neil, is that there are face-to-face conversations that are happening within the regional areas. We have a widely dispersed sales force that effectively partners with our distribution partners. And quite frankly, our distribution partners also have a sales force on the ground as well, which is complementary. And so I think those conversations are starting to happen, but certainly the air travel and those sorts of things, even for guys like me and guys like Kevin, aren't happening as well, so.

[Operator]

[Operator Instructions]. Your next response is from Rupert Merer of National Bank.

[Rupert M. Merer, Managing Director and Research Analyst]

So with the reduction in operating staff in the last quarter, can you talk about your production capacity today? Are you carrying much excess capacity and you have the ability to flex up or down anymore at this time?

[Kevin P. O'Meara, President, CEO & Director]

We typically capacitize ourselves to be able to swing on a week-to-week basis, 15% to 20%. So we've got some slack capacity in the system. But to go much beyond that would require us to increase our staffing levels. It's not an equipment or facilities restraint. It's purely with people.

[Rupert M. Merer, Managing Director and Research Analyst]

And with building the new facility, so you target $10.5 million of investment this year. What are the plans right now for the facility? In light of your lower production levels, how far do you take this facility? Will you ultimately operate this facility once it's commissioned as it stands or do you think that maybe you'll slow things down a bit?

[Kevin P. O'Meara, President, CEO & Director]

No, we'll fully commission it and operate it. The cost space is particularly the logistics and freight savings for Southeastern jobs is very compelling. And the incremental cash expenditure particularly with capital lease financing was not overly meaningful. And so it was not a difficult decision to say after you set aside, but already we were contractually committed to, what would the incremental cash from our balance sheet need to be in order to get it fully functioning and capture those savings. And the activity level to make that a good investment is not particularly high.

[Rupert M. Merer, Managing Director and Research Analyst]

And then turning to your distribution partners. So you added 5 this quarter and reduced by 3. You mentioned that some of the new partners are already contributing to the order flow. Can you talk about how the activity level is varying across the network? Are you seeing all of your distribution partners operating or are there some that are offline now? And are there any that are maybe seeing stronger order flow in this market?

[Kevin P. O'Meara, President, CEO & Director]

The ones that are -- have the most reduced activity, although it's starting to change, but if you look at it on a quarter basis, would be like New York and Boston and Northern California where jurisdictionally job sites were pretty much shut down. And so those are starting to open up more, so you're seeing a little bit more there. Beyond that, it really is project-based. And so at any point in time, if somebody has a large project that they've been working on, I don't know from a quoting standpoint if there's any place we could highlight where one is more motivated or having a higher quoting experience than anywhere else.

[Rupert M. Merer, Managing Director and Research Analyst]

And your presentation shows you have 80 distribution partners now. How has that changed over the last couple of years? Remind me where the number has come from. And where do you think you go from here? Do you look to increase the number of distribution partners further? Is there a benefit to doing so?

[Kevin P. O'Meara, President, CEO & Director]

I'm going to let Geoff to answer that question in detail and just share with you that we've kind of been changing how we calculate that number. I'll let Geoff give you more detail. In terms of strategically, by and large what we've done is one of 2 things: either upgraded an underperforming partner or added partners to get enhanced market coverage. Ideally, we would have existing partners increase the business that they're doing and help them and support them doing that in places where we think they were underpenetrated and that's not likely. We are prepared to add a distribution partner.

[Geoffrey D. Krause, Chief Financial Officer]

Yes. I'd say, Rupert, we're probably up net 4, net 5 relative to where a couple of years ago. We've added a number, but we've also removed some lower-performing partners. So I'd say that it's an improvement in the quality of the network and we are slightly higher, but not by a material amount.

[Operator]

Your last question is from Greg Palm of Craig-Hallum Capital Group.

[Danny James Eggerichs, Research Analyst]

This is Danny Eggerichs on for Greg today. I know you gave the comments on kind of average daily order throughout Q2. I was wondering if you could give some color on maybe some monthly order trends as -- that you saw as we move throughout the quarter.

[Geoffrey D. Krause, Chief Financial Officer]

It's Geoff here. It was fairly consistent. I'd say we saw a -- perhaps a slight slowdown mid-quarter. It bumped up a little bit into June. But it's been very -- it's been quite variable. We've seen some really strong order days. We've seen some really weak order days. And so it's difficult to see a pattern apart from looking at an overall weekly basis. And on a weekly basis, it has definitely held in there to that extent.

[Danny James Eggerichs, Research Analyst]

All right. Got it. I guess as we look forward to kind of the pipeline for Q3, what's your feel around the potential for additional project delays that you expected to hit in Q3, kind of similar like -- to like the $3.7 million that you saw this quarter?

[Geoffrey D. Krause, Chief Financial Officer]

That's really tough to say. Again, it's Geoff here. It's really tough to say. I think we've seen some stuff move around certainly. I'd expect it would be around that level, but it is really regionally dependent. It's really project dependent. And so I would say, you could probably have a rolling number somewhere around that $3.7 million, perhaps a little bit less in the third quarter, but I think we're going to continue to see this moving forward. And it's super fluid, particularly if you can operate on a construction site or if you get us to be that goes to the lockdown or stuff like that, so.

[Danny James Eggerichs, Research Analyst]

Great. And then last one from me. Just looking at your distribution partners, how are you seeing, I guess, kind of the health and stability of some of those? Are you concerned with that at all?

[Geoffrey D. Krause, Chief Financial Officer]

Again, it's Geoff here. No, we're not. We've been keeping very close tabs with our partners. If we were seeing problems, you would have seen an uptick in our allowance for doubtful accounts, which you did not see this quarter. And in fact, as I said, our DSO has gone down. We're continuing to have ongoing discussions. Our partners themselves have also had to take appropriate actions within their businesses to make sure that they remain healthy and able to move forward and many of them have so.

[Operator]

Thank you. There are no further questions in the queue at this time.

[Kevin P. O'Meara, President, CEO & Director]

Thank you, operator. As you've heard, we've come a long, long way in recent months. Before closing, I'd like to thank our tremendous employees and partners who've demonstrated resiliency and commitment in the face of extraordinary circumstances. Their dedication to DIRTT and our collective mission is the foundation of everything we do. Thank you for joining us today.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a good day.